主题：03/16/2009 Market View -- 宁子

New York Manufacturing fails to keep pace with other regions as it slides again.

Chicago and the national manufacturing reports, while not showing positive moves the past two months have shown improvement in that they fell at a slower and slower pace. That is what you watch for initially to see a sign of an economic turn.

Well, NYC did not keep the east coast in the game with the rest of the regions (sans Philly). It fell to -38.23, much faster than the 030.8 expected and 34.65 in February. Indeed, it was the fasted contraction pace on record (but that is only since 2001 as this is a new index, so consider it has only 1 recession, and then just part of one, as a guidepost).

What does it mean? It puts a lot of emphasis on the other regions to come and whether the continue to show improvement or slam the modest ticks higher. No one data point is determinative of course, and it is always a series of gains and declines just like a trend higher, so we just have to hang in there and see what the next reports show.

Factory production and utilization continue to languish.

Production from factories and mines fell 1.4%, and while that was not as much as the 1.9% January decline the year over year 11% drop was the largest since 1975. Capacity fell to 70.9%, not a new low on this decline but matching the lowest level on record.

Motor vehicle and parts production rose 10% after a 25% January dive. Computers and machinery orders slumped again, not helping the view of a global economic recovery near at hand.

But commodities are rising even as some reports trend lower.

Yes, yes, but these are not the cutting edge, leading indicators. If you look at commodities across the board they are moving higher. Not necessarily the stocks, but the items themselves and that shows anticipated demand. The stocks will follow such as FCX has done for us. Thus despite the depressing production and utilization data there is a perceived need for the very stuff that countries are built out of and the basics the people need to make the goods they use in everyday life.

LIBOR has a little streak going here, but needs much more.

We have been on the LIBOR path for a long time, watching it fall after the original TARP, interbank loan guaranty facilities, and the many Fed actions. Then we watched it jump back when the Paulson Treasury abandoned buying toxic assets before it started and gave away money to banks. It took the Fed's TALF initiative to support mortgages and small businesses to turn it back down. A nice steady decline down to near 1% on the 3-month dollar LIBOR. That was getting closer to where it needed to be.

Then the Obama Administration came out with spending programs, social reorganization labeled as stimulus, hostility toward business, trillions in spending, and, despite repeated statements it would produce one, no bank plan. From near 1% to 1.33% in a matter of just a few weeks. What was thawing refroze again.

Then the tone softened a week ago. The market was ready to bounce and it did, getting a trigger from a potential change to the mark to market rules and Geithner finally outlining some concrete plans for the bank bailout. After rising to 1.33% the 3-month dollar LIBOR held for three days and then on Friday ticked lower to 1.32%. Monday it ticked lower again to 1.31%. Drip, drip, drip. Some melting from the icicles.

That puts the TED spread (3-month LIBOR minus 3-month US Treasury) at 1.09%. Not much change, however, because the 3-month Treasury dropped in price to 0.22%. We want to get TED down to 0.50% or so to make things flow reasonably smoothly. There is still a long way to go, but if you get 3-month LIBOR back near 1% you are making a solid dent in that. Unfortunately, we lost a lot of ground over adjusting to the Obama administration before it figured out you do have to talk nicely to the markets, particularly when you pass trillions of dollars in spending programs without reading them. It is, alas, a confidence thing.